Gross Profit margin for a production Catamaran

Discussion in 'Multihulls' started by Don H, May 27, 2012.

  1. Don H
    Joined: Apr 2012
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    Don H Junior Member

    Hi All, I am wondering if someone can give me an idea of what might be realistic for a gross profit margin for a professionally built Catamaran.
    My business is Electronics equipment manufacture and I generally try to get at least a 40% gross profit. The lowest I charge is 30% on a resale or rebadge and up to 60% on some custom items.
    A customer price will be between 1.25 to 2.5 times the build cost. (Components +labour +overheads) Discounts for volumes then apply.

    What would a boat builder typically charge? With high component and parts outlays for a reasonably long time and generally only building 1 at a time I would expect the margin not to be too tight. Deposits will help some of the load on the builder and a full long time order book would allow for a lower margin.
    I don’t know that it would vary for size but I’m thinking about 49 feet, power displacement catamaran, Aluminium.
    The reason I ask is to get an idea of the bare build cost of various production boats and determine the direction I want to go with my own project

    Thanks Don
     
  2. Ismotorsport
    Joined: Feb 2012
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    Ismotorsport Junior Member

    In general, there is a 400-500% markup above actual build costs for "most" production boats. Certainly higher volume manufacturers have a little less as they focus on volume and have there dealerships price accordingly. Been privy to the actual "books" and seen these figures firsthand. Good luck.
     
  3. John Perry
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    John Perry Senior Member

    Since your business is not boat building I assume you are thinking of an amateur boat building project, in which case would it not be more direct to estimate the costs by setting up a spreadsheet for all your materials and equipment costs rather than trying to work backwards from a manufacturers selling price to somehow get the 'bare build cost'?

    I dont quite understand ISmotorsports post, what is included in actual build cost, just the materials, or materials+brought in items+labour+overheads etc.? I did work for a short period in the yacht building industry but I was not on the financial side so cant really comment.
     
  4. waikikin
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    waikikin Senior Member

    That seems quite high!
     
  5. aussiebushman
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    aussiebushman Innovator

    A more useful formula that is tried and tested over many years is the 1/3 basis, meaning 1/3 for manufacturing cost, 1/3 for overhead, including marketing and 1/3 for profit margin.

    Of course, you must be very careful to include all of your real costs in the first component, including amortisation of moulds and other establishment costs. For the second third, it is important to consider any reseller margins that might be incurred, OR set the sell price as "wholesale" and let the reseller put on the markup. The problem with the latter is that you lose control of the pricing strategy. Finally, the "profit" should anticipate taxes, unless you have allowed for these as part of the overhead.

    Please appreciate these comments are general in nature based on my experience as a marketing consultant in many different product categories. In your specific case, you need to break down every possible expense or your final result may be way out.

    Hope this helps

    Alan (www.aspac-consulting.com.au)
     
  6. Don H
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    Don H Junior Member

    Thanks for your answers, pretty much what I had expected although I am surprised at 400-500% I didn’t think it would be that much but sometimes you can charge whatever you want if the market will support it. I would imagine this will only apply to special build where there may not be too much competition yet.
    Alan’s rule of thumb of 33% or 1.5 times the build cost may be more applicable in general.

    John, the question is for a build project but not to work backwards to a build cost from a production sell price. When I have all the details sorted of what I want I will use a form of spreadsheet for item costs and seek professional services for the design etc. I plan to look after the direction and gofor part of the build and leave the rest to the professionals in their respective fields.
    I mainly want to have realistic expectations of what is possible within a budget rather than wasting others time. If I have a reasonable idea of what a supplier (labour or component) will add to a basic item cost I will then be close to the final delivered price.
    Thanks again for your help.
    Don
     
  7. HakimKlunker
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    HakimKlunker Andreas der Juengere

    John: We boat makers never get rich. Only the traders/dealers.
    Aussiebudhman's estimate comes pretty close to reality.
    I would like to add from own experience: Any customer will try to drop the purchase price and in most cases this effects the third third :(
    Depends now on the individual 'strength' and 'health' of a company how much they will accept to lower a price. No business is always worse than reduced business.
    I normally ask my customers to tell me if they are going to negotiate later, so that I can raise my entry price right from the start. :p
    "Burt: He does not want to haggle...."(Life of Brian, M. Python)
     
  8. aussiebushman
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    aussiebushman Innovator

    Don

    Few people appreciate that good marketing is based on mathematics and the numbers must work from the cost upwards, as well as the sell price downwards. The two calculations need to agree, or either the costs are wrong, or the perceived sell price is unrealistic. Incidentally, the 1/3 rule is my own variation of the traditional idea that materials, labour and overhead/profit made up the total. Today, regulatory, admin, insurance costs etc are significantly greater than used to be the case.

    As stated in my earlier message, you must dentify every cost item and build it into the P&L. For the sell price, it must be a realistic appraisal of the perceived value, meaning what the end customer will be prepared to pay. Next (and this is where Halim's point is critical), how much margin will a reseller/dealer accept and what is expected of this reseller by way of marketing to justify that margin?

    Some (In my view foolish) manufacturers rely on the reseller to do the marketing for them. This makes them more vulnerable to dealer antics. A better solution is to control the marketing yourself, so the product is "positioned" to appeal directly to the target market with the value propositions clearly communicated by way of advertising, media releases, boat shows and other promotional efforts. The dealer becomes precisely what he should be - a conduit to the end-purchaser and if a discount is needed to effect the sale, it comes out of the dealer's margin, not yours, unless by prior arrangement as a promotional incentive. This means the promotion and advertising costs are more easily defined and controlled as P&L items.

    If you are serious about this as a business project. I suggest you contact me off-forum and we can work through the numbers on a professional basis.

    Regards

    Alan
     
    1 person likes this.
  9. mydauphin
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    mydauphin Senior Member

    I am glad nobody asked about the profit, cost overruns, R&D monies, or just the costs of paying the taxes. It all depends on the builder and how many they build. Most boat builders make enough money to build the next boat.
     
  10. aussiebushman
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    aussiebushman Innovator

    Mydauphin

    Which part of my previous messages did you not understand?

    "you must be very careful to include all of your real costs in the first component, including amortisation of moulds and other establishment costs" R&D is patently covered in the "establishment costs" as are contingengies for cost overruns. The production volume forecasts must obviously affect the amortisation costs. This also implies assessing the market demand, product positioning, pricing and numerous other issues

    No professional is going to work the costs on any other basis.

    Also "regulatory, admin, insurance costs etc" surely includes taxes and similar imposts at all of the various input levels.​

    As you imply, many "businesses" are run by tradesmen with little or no knowledge of these fundamentals and that is why those businesses fail - they forge ahead with production based on a great idea, without any professional evaluation of the numbers.

    Alan
     
    Last edited: May 29, 2012
  11. redreuben
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    redreuben redreuben

    Boat builder who won the lottery was asked what he was going to do with the money, "Oh I'll keep working till it runs out"

    How to make a small fortune boat building
    Start with a big one !
    :D
     
  12. Petros
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    Petros Senior Member

    Many boat builders recently have been selling boats for less than they cost to make. Most will not survive, but a few will.

    That is a complicated question, production boats are very different animals than custom built. Consider the design and tooling (saves labor), plus volume materials purchase, are spread out over many hulls (sometimes even thousands), vs. one design, one build in a boat yard.

    Typically large low production items have smaller gross profit margins, than mass produced small items. A Boeing 747 might have only a gross margin of 6 percent, and though called a production aircraft, are essentially hand built one at a time. Yet a mass produced fad toy (with only one sales season market life), might sell for 10 times cost, or more.

    So size matters.
     
  13. Don H
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    Don H Junior Member

    Thanks for your comments Alan but this is just a one of project for myself. I don’t plan to go into the boat building business.
    From the various answers boat building looks pretty much the same as any other. I probably should have said average gross profit since it seems the margin can vary greatly depending on the build.
    6% GPM would not work here. Banks are paying 5% for that amount in interest and charging 9% on an overdraft. This defiantly would be the way to turn a large amount of money into a small one.
    It would be good to charge all design and setup costs for the first unit. I do this for our electronics products because often they are not repeated.
    Costs for moulds can be spread over multiple units.
    I generally try to charge for R&D costs but sometimes there are tax concessions if there are exports and during hard times we do sometimes "buy" jobs. I guess it comes down to how many orders are in the book and that 30% still looks like the minimum if a business is to survive through the sweeping the floor times as well as the busy times.

    Thanks Don
     
  14. Stumble
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    Stumble Senior Member

    Don,

    I only know a few people who have made money in boat building, and the ones that do always have multiple threads of business.

    Trinity marine for instance builds some of the most georgous aluminium yachts in the world, but their sister company (same owners and workers) build aluminium and fiberglass fast attack boats for the military, and SAR missions. Plus they have a whole line of commercial refit work. So in the good times they build yachts where they make money, in the lean times they build military/police stuff to keep the doors open, and there is always a trickle of commercial refit going on to pay the light bill. The owners do quite well for themselves, but I can tell you the owner's boat is an old converted crew boat, not one of his yachts.
     

  15. aussiebushman
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    aussiebushman Innovator

    Don

    If a major motivating factor is to get a vessel for yourself. you might look at the Fusion 40. One of my suppliers does exactly as "Stumble" says, meaning he sells marine timbers and has an up-market commercial fitout business that pays the bills.

    The Fusion came in a container as a series of pre-finished components. I presume he did the fitout himself. The result is excellent, by all accounts. Then he got himself appointed as the NSW agent so if he sells any, he recoups a fair whack of the initial cost.

    Regards

    Alan
     
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